For the last 10-years, surveys show rising costs are the number one challenge for healthcare organizations. The same surveys show the number two challenge is physician recruitment and retention. In rural areas, those numbers are reversed with physician recruitment and retention as the number one challenge, and rising costs the number two challenge. Moreover, the situation is getting worse because by 2025 the U.S. will be short 90,000 physicians. If you think that’s bad…the nursing shortage is an even bigger problem. According to the Bureau of Labor Statistics, between 2014 and 2022 there will be 1.2 million job openings for registered nurses.
The growing shortage of physicians and nurses – along with value-based healthcare, and an aging boomer population – will make competition for the best talent even tougher in the future.
The solution can be found in several studies conducted by the AMA Insurance Agency, which is owned by the American Medical Association. The studies show the number one financial concern for all U.S. physicians is having enough money to retire. The reason is when physicians stop working their income stops. However, the monthly bills to maintain their lifestyle keep going up due to inflation. The same is true for the nurses and key healthcare executives. The result is that almost none of them can afford to retire.
Healthcare organizations looking to attract and retain physicians, nurses, and key healthcare executives should focus on retirement benefits as a recruitment and retention incentive.
If you’re thinking 401(k)…think again!
Historically, pension plans have long proven to be the most powerful retention tool ever designed. Years ago, the Greatest Generation came back from World War II and went to work for big companies. They would spend their entire careers with the same company, because at retirement, they would get a lifetime pension. Social security supplemented their pension and they enjoyed true financial security in retirement. They never worried about running out of money.
In 1978, the Boomers changed everything with the 401(k). Now, 38-years later, the 401(k) has proven to be a complete disaster because almost no one can afford to retire. In addition, employee turnover costs have skyrocketed because there is nothing tying the employees to the company.
People used to spend 25 to 30-years or more with the same company. Employee turnover rates were almost non-existent. Today, according to recent numbers from Bureau of Labor Statistics, the average U.S. worker changes jobs every four point four years. The cost of replacing anyone in the $100M and up range is 213% of salary!
Times have changed and the cost of funding retirement plans has dropped dramatically in recent years because they can now be funded with very special bank financing.
Let’s start with this concept:
Step 1: A healthcare organization decides to offer lifetime retirement plan to a 40-year-old physician.
Step 2: Utilizing a $150M business line of credit as collateral, the healthcare organization takes out a $1.5MM bank loan.
Step 3: Over the next 7-years, the money is put into a permanent cash value life insurance policy in seven equal installments.
Step 4: The healthcare organization services only the interest portion of the loan, while the cash value in the life insurance policy grows tax-deferred.
Step 5: In the 13th and 14th year of the plan, the loan principal is paid back from the cash value of the life insurance policy.
Step 6: At age 70, the physician enjoys a lifetime tax-free income of $120k per year from the life insurance policy in the form of policy loans.
To physicians, nurses, or healthcare executives in their mid-40s, 50s, or 60s who are worried about retirement, it’s a solution to their number one financial concern of having enough money to retire.
As a result, it will draw them in and hold them to your healthcare organization, because without it they can never retire.
It is a solution to your long standing and ever growing problem of recruitment and retention.
Additionally, the cost of funding a retirement plan in this manner can be up to 45% less than turnover costs alone.
For more information please contact:
David Alemian, Vice President